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Good morning! Today we look at progress and possibilities for U.S.-China trade relations, “gaping differences” in Nafta talks, President Trump’s pressure on Germany, oil’s latest jump, and the not coincidental rise of U.S. Treasury yields and U.S. mortgage rates. U.S.-CHINA BREAKTHROUGH?
China is easing up on U.S. farmers. Will the U.S. dial back sanctions on China’s telecommunications champion? China ended an anti-dumping and antisubsidy investigation into imported U.S. sorghum, as the two countries work toward a deal to ease trade tensions. After weeks of tit-for-tat threats of levies on growing lists of products, Washington and Beijing are now zeroing in on a deal to resolve the trade conflict, Lingling Wei reports. It would give China’s ZTE Corp. a reprieve from U.S. sanctions in exchange Beijing’s lifting tariffs on billions of dollars of American agricultural products. President Xi Jinping’s economic envoy, Liu He, is in Washington for talks.
HALF MIGHT BE TOO MUCH
The White House is likely to fall well short of a plan to slash the U.S. trade deficit with China by half. That’s in large part because American farms and factories will find it hard to produce enough exports to meet that goal, Bob Davis and Lingling Wei report. The Trump administration wants China to commit to work with Chinese importers to reduce the U.S. trade deficit with China by at least $200 billion by the end of 2020. Even if the two sides could agree on items to target—they don’t—and even if China cooperated by lowering import barriers, trade experts say the U.S. simply doesn’t have the capacity to ramp up production enough to make the $200 billion goal.

Comments or suggestions for Real Time Economics? Write to Jeffrey Sparshott at realtimeeconomics@wsj.com, tweet to @WSJecon and visit wsj.com/economy for the latest.WHAT TO WATCH TODAYCanada’s consumer price index for April is out at 8:30 a.m. ET.
China’s Liu He, President Xi Jinping’s economic envoy, is in Washington for talks on trade.
Fed governor Lael Brainard speaks on the Community Reinvestment Act at 9:15 a.m. ET, and the Dallas Fed’s Robert Kaplan speaks at a University of Texas symposium at 9:15 a.m. ET.
TOP STORIESGOODWILL GESTURES?
China is signing off on U.S. deals again. Antitrust regulators on Thursday approved U.S. private-equity firm Bain Capital’s $18 billion deal for Toshiba’s memory-chip unit. Early this week, the regulators pledged to restart without delay their review of Qualcomm’s $44 billion purchase of NXP Semiconductors. China had been weighing the Toshiba deal for months. And in April, regulators said their scrutiny of the Qualcomm purchase had turned up issues that were “hard to resolve.”
CALL ME
Why does ZTE need to get out from under U.S. sanctions? Look inside its phones. U.S. companies supply 60% of the electronic components in ZTE’s Axon M smartphone, according to ABI Research Inc. San Diego-based chip maker Qualcomm provides at least eight of 25 key components on the device’s main circuit board. Other key parts come from U.S.-based SanDisk Inc., Skyworks Solutions and Corning, the maker of Gorilla Glass, Dan Strumpf reports.
NOPE ON NAFTA
President Trump’s trade chief said the U.S. is “nowhere near” a deal on the North American Free Trade Agreement. U.S. trade representative Robert Lighthizer said “gaping differences” remain on intellectual property, agricultural trade, duty-free levels for shipments, labor rules, and other areas. House Speaker Paul Ryan originally said Congress would need paperwork on a revised deal by May 17 in order to consider and approve it this year. On Thursday he softened, saying “there’s probably some wiggle room,” William Mauldin and Siobhan Hughes report.
Morgan Stanley take: “NAFTA should survive, but don’t get complacent. Resolution is unlikely before 2019 & execution risks remain.”
ACHTUNG!
President Trump is pressing Germany to pull the brakes on a major gas deal with Russia as the price for avoiding a trans-Atlantic trade war. Mr. Trump told German Chancellor Angela Merkel in April that Germany should drop support for Nord Stream 2, an offshore pipeline that would bring gas directly from Russia via the Baltic Sea. This would be in exchange for the U.S. starting talks with the European Union on a new trade deal, Bojan Pancevski reports. The White House pressure reflects its hardball tactics on trade, moves that have contributed to rising tensions between Europe and the U.S.
OIL TOPS $80 (BRIEFLY)
Keep an eye on oil prices. Brent crude, the global oil benchmark, hit $80 a barrel on Thursday before settling just below that threshold. Oil prices are up more than 18% this year. “With higher oil and gas prices, U.S. consumers are relative losers, while U.S. producers are clear winners,” HSBC Kevin Logan said. “U.S. oil production will keep rising, consumer demand for petroleum products will moderate and imports will fall, contributing to a slightly faster rate of GDP growth.”

CHART OF THE DAY: MORTGAGES
U.S. mortgage rates this week climbed to their highest level in seven years. The yield on 10-year U.S. Treasurys closed at its highest level since July 2011. Coincidence? No. It’s just one example of how Treasury yields affect borrowing costs—for consumers, companies and governments. The Federal Reserve (raising its benchmark interest rate), economic prospects (looking pretty solid), government borrowing (the U.S. is issuing more debt) and geopolitical calm (Treasurys are considered a safe bet) all help fuel rising yields. To be sure, rates remain low by historical standards. The upward creep, though, will affect borrowers. Costlier mortgages, for example, could slow home price appreciation and squeeze first-time buyers.

QUOTE OF THE DAY“But with all the years, and all the years that you’ve covered trade and nations and wars, and everything else, you’ve never seen people come over from China to work on a trade deal. Now, will that be successful? I tend to doubt it.” – President Donald Trump, speaking to reporters on Thursday
TWEET OF THE DAY
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WHAT ELSE WE’RE READINGThe U.K.’s apparel industry is making a small-scale comeback. That’s hasn’t been all good news for workers. Instead, it “has become a cautionary tale about how the reshoring of manufacturing jobs can go wrong when the government fails to enforce its own laws,” The Financial Times’s Sarah O’Connor writes. Some companies offer illegally low wages and unsafe conditions as they produce inexpensive clothing that feeds consumer demand for the latest fashion.
How do right-to-carry laws affect crime rates? It’s complicated. “We find that RTC laws increase some crimes, decrease other crimes, and have effects that vary over time for others,” Charles Manski and John Pepper write in MIT’s Review of Economics and Statistics.
Investment in infrastructure supports economic growth, right? Well, that depends on where you live, at least in China. “An important policy implication is that investing in local transport infrastructure to promote growth of hinterland prefectures has the opposite effect, causing them to specialize more in agriculture and lose economic activity,” Nathaniel Baum-Snow, J. Vernon Henderson, Matthew Turner, Qinghua Zhang and Loren Brandt write in a National Bureau of Economic Research working paper.

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